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IRS Plans to Process Complaints against Tax Preparers Faster - Accounting Today

Google IRS Federal Income Tax - Thu, 2014-09-04 11:27


IRS Plans to Process Complaints against Tax Preparers Faster
Accounting Today
The IRS processed about 77 million individually electronically filed federal income tax returns prepared by paid tax return preparers in 2013, TIGTA pointed out. As part of its oversight responsibilities, the IRS has developed processes and procedures ...
IRS Employee Charged With Tax Fraud Over Refund SkimForbes
Tax-Exempt Organizations Still Have to Pay Payroll Taxes…and Owe at least ...AllGov

all 11 news articles »
Categories: Tax news

New Study Finds New York Growth in Millionaires Slowest in the Nation

Tax Foundation - Thu, 2014-09-04 10:00

The Empire Center, a nonpartisan think tank in New York, released a report today suggesting that New York has lagged behind the rest of the nation in making new millionaires. From 2011-2012, the United States on the whole saw a 29 percent increase in the number of millionaire tax filers. New York however saw only a 14.6 percent increase in the same period, the lowest rate of growth in the country.

The report further points out that New York had also “trailed the national rate of increase in the number of taxpayers earning AGI of $200,000 or more.” Authors E.J. McMahon and Daniel Russo argue that these are troubling indicators and point to weaknesses in the state’s economic growth and wealth creation. In fact, there is good reason to believe taxes may play a role in slowing the rate at which states gain new millionaires.

One deterrent for the state’s wealth creation is its “Millionaires Tax.” As we have written before, some states have been more willing to raise income taxes by designing the increase to affect only a small subset of high-income earners. The income level at which the new top rate applies is often a sharp jump from where the top rate previously applied. In the case of New York, rates jump from 6.85% to 8.82% on incomes over $1 million. Furthermore, New York is one of three states to have an “income recapture” provision, whereby taxpayers with income over a certain threshold must pay a higher tax rate on all income below that threshold as well. Provisions like these can encourage tax avoidance and extra tax planning at least, distortionary income and benefits restructuring in many cases, and at the extreme even increased out-migration and diminished work incentives.

New York is ranked 50th in our 2014 State Business Tax Climate Index, and has the highest state-local tax burden in the country at 12.6%. Such uncompetitive tax policy can negatively impact economic growth generally, as we have demonstrated before. But the case of millionaires is even more straightforward. Even without any controls, state-local tax burdens can account for 44 percent of the variation in millionaire growth rates among the states. A regression of tax burdens, economic growth, and state price levels can explain over 70 percent of the variation in state growth rates for millionaires, and higher tax burdens remain a significant indicator of lower growth in millionaires.

In many cases, the relationship between taxes and economic variables of interest is complicated. But in some, it’s simpler. With New York having some of the most burdensome taxes in the country on individuals who may be most sensitive to taxes, it makes sense that growth in millionaires would be slower. Throughout the nation, more burdensome taxes are associated with slower formation of millionaires.

At least some portion of New York’s slow millionaire growth may be due to migration. This can be seen from our state migration map, which shows that from 2000-2010, New York had a net loss of $45.6 billion in personal income from people leaving the state. While the state remains a leader in terms of millionaires per capita for now, the state’s continuing high taxes may help other states take the lead. Just since 2010, New York’s share of millionaires nationwide fell from 12.7 percent to 11.2, while Texas’ rose from 8.5 percent to 9.3. New York’s recent tax reform was a step towards less economically damaging taxes in the Empire State, but there remains a long way to go before the state’s whole tax code will be truly competitive.

Read more on New York.

Read more on Millionaires’ Taxes.

Read more on Migration.

Follow Josh and Lyman on Twitter.

Categories: Tax news

IRS Aims to Tax Silicon Valley Workers' Fringe Benefits

Tax Foundation - Thu, 2014-09-04 06:15

The Wall Street Journal reported this week that the IRS is looking to tax the free food that many Silicon Valley companies offer their employees.

“The IRS and U.S. Treasury Department last week included taxation of "employer-provided meals" in their annual list of top tax priorities for the fiscal year ending next June. The agencies said they intend to issue new ‘guidance’ on the matter, but gave no specifics about timing or what the guidance would say.”

The IRS believes that the regular free meals provided to employees are a fringe benefit and should be taxed like compensation.

Generally, there are two ways that the tax code looks at meals provided to employees. The code tries to distinguish between whether the meals are compensation (a regular payment in exchange for labor) or for the convenience of the employer (an expense necessary for an employee to do their job such as a meal for a worker on an oil rig in the middle of the Gulf).

If the former, the meal is taxable. If the latter, the meal is not taxable. The meals look more like taxable compensation to the IRS.

The most straight forward way to see the IRS’s argument is by comparing it to the current employer-provided health insurance exclusion, another hole in the income tax code that most people want to patch.

Currently, the fringe benefit of employer-provided health insurance is not taxable. The business purchases insurance coverage for its employees, deducts that cost from its taxable income, but employees do not have to pay tax on it. This exclusion in the income tax code amounts to a $143 billion loss in tax revenue, according to the JCT, which is the single largest tax expenditure in the tax code.

This is a large subsidy for employer-sponsored health insurance due to its special tax treatment compared to cash income. Suppose your current marginal tax rate is 25 percent. The after-tax value of $1 of cash income is $0.75 while $1 of health insurance is $1. This encourages companies to provide health insurance rather than a higher salary in order to attract individuals with high compensation packages.

The income tax should apply to the value of employer-provided health insurance.

The IRS sees free meals this way too and it makes sense.

Of course many people will see this differently and argue that these meals are not compensation, but should be treated as a convenience.

Ideally, the income tax would apply to all non-pension fringe benefits including meals (pensions would be taxable when paid out), but how you determine which type of meal is a fringe benefit and which is not will have to be left up to the lawyers.

Categories: Tax news

Corporate Deadbeats: How Companies Get Rich Off Of Taxes - Newsweek

Google IRS Federal Income Tax - Thu, 2014-09-04 03:12


Corporate Deadbeats: How Companies Get Rich Off Of Taxes
Delay is a modern philosopher's stone, but instead of turning lead into gold, this tax alchemy makes the black ink of profits look red when examined by Internal Revenue Service auditors. One technique is ... This is why big utilities—Pacific Gas ...
Actually, Burger King Has Been Trying To Dodge Taxes For YearsHuffington Post

all 171 news articles »
Categories: Tax news

Brunswick man charged with conspiring to defraud IRS calls federal court ... - Bangor Daily News

Google IRS Federal Income Tax - Wed, 2014-09-03 15:54

Brunswick man charged with conspiring to defraud IRS calls federal court ...
Bangor Daily News
F. William Messier, 70, who is charged with the same crime, as well as with failing to file federal tax returns and failing to pay federal income tax on nearly $400,000 from rental space on communication towers he owns in Brunswick, also will not ...

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Categories: Tax news

Brunswick man charged with conspiring to defraud IRS calls federal court ... - Bangor Daily News

Google IRS Federal Income Tax - Wed, 2014-09-03 15:54

Brunswick man charged with conspiring to defraud IRS calls federal court ...
Bangor Daily News
F. William Messier, 70, who is charged with the same crime, as well as with failing to file federal tax returns and failing to pay federal income tax on nearly $400,000 from rental space on communication towers he owns in Brunswick, also will not ...

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Categories: Tax news

Governor Rick Scott Offers Mixed Bag of Tax Proposals for Florida

Tax Foundation - Wed, 2014-09-03 08:45

Governor Rick Scott (R) of Florida has launched a new bus tour as part of his re-election bid, advertising a plan to cut taxes in Florida by $1 billion. The key features of the plan are:

A constitutional amendment restricting property tax increases $200 million in new tax holidays A reduction automobile registration fees A reduction local telecommunications service sales taxes Permanent elimination of the sales tax on manufacturing equipment Continued phase-out of the state corporate income tax Elimination of the sales tax on commercial leases

These proposals are a mixed bag. Restrictions on property tax assessments can reduce local taxation, but only if there are also restrictions on property tax rates, effective standardization of tax assessing practices, and strict limits on other local revenue sources. Otherwise, if property taxes are ineffectively capped, localities will just raise the same revenues through less transparent means like excessive fees, fines, or budget gimmicks that just push expenses further out.

Tax holidays are even worse policy. While they may be politically expedient, sales tax holidays just create additional compliance burdens while failing to promote economic growth. Florida was an early-adopter of this distortionary tax policy, taking the practice from more highly-taxed New York in 1998. But a more economically productive course than narrow carve-outs for certain goods would be general sales tax relief. If policymakers believe it is worthwhile to offer $200 million in sales tax relief, a small across-the-board rate reduction could be passed, instead of a special provision for a few advantaged retailers.

That said, Governor Scott’s plan includes some valuable proposals as well. Florida has the 4th highest cell phone taxes in the nation, so tax relief in that sector would bring the Sunshine State closer to national norms. Eliminating sales taxes on business inputs, like commercial leases and manufacturing equipment, is also sound tax policy, because taxes on business inputs create tax pyramiding and significant economic distortions. Finally, moving to reduce or phase out the corporate income tax would follow with a broader trend around the nation. Many states have been experiencing declining corporate tax revenues due to increasing credits and deductions, falling tax rates, and changes in income apportionment formulas. In a competitive national and global environment, state-level corporate income taxes seem increasingly unable to raise sufficient revenues to justify their negative economic impacts.

Governor Scott’s tax proposals offer meaningful improvements in some areas like cell phone and corporate income taxes. But on other issues like the property tax cap, it’s not clear whether or how the plan will work; on sales tax holidays, the proposed “tax cut” would actually make the tax code more complicated and distortionary, while creating little or no economic growth.

Read more on Florida here.

Follow Lyman on Twitter.

Categories: Tax news

IRS set to clarify who qualifies for tax-favored status in the shale patch - Environment & Energy Publishing

Google IRS Federal Income Tax - Wed, 2014-09-03 07:14

IRS set to clarify who qualifies for tax-favored status in the shale patch
Environment & Energy Publishing
Why couldn't a McDonald's restaurant chain in the shale patch -- or any food provider -- form a master limited partnership (MLP), thus avoiding the federal corporate income tax? Answer: It would have to ask the Internal Revenue Service, and MLP experts ...

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Categories: Tax news

IRS wants to feast on 'free lunch' perk in Silicon Valley - Manteca Bulletin

Google IRS Federal Income Tax - Wed, 2014-09-03 01:35

Irish Independent

IRS wants to feast on 'free lunch' perk in Silicon Valley
Manteca Bulletin
Here's a question for Congressional Republicans: Why do I have to pay my federal income taxes and others don't to the tune of more than $400 billion a year? And according to the IRS Oversight Board, most of those taxes are owed by corporations and rich ...
Tax Collectors in the CafeteriaWall Street Journal

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Categories: Tax news

Chris Tucker Blames Poor Management for IRS Lien After Settling Huge Tax Bill - Newswire (press release)

Google IRS Federal Income Tax - Tue, 2014-09-02 15:52

Newswire (press release)

Chris Tucker Blames Poor Management for IRS Lien After Settling Huge Tax Bill
Newswire (press release)
USA Today examined public records and found more than 50 people prominent in the entertainment industry who owe at least $50,000 in back taxes to the federal government, according to IRS tax liens. Many also are behind on state income taxes, according ...

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Categories: Tax news

The IRS Is Giving Away $13 Billion A Year In Wind Energy Subsidies, Without ... - Forbes

Google IRS Federal Income Tax - Tue, 2014-09-02 12:36

The IRS Is Giving Away $13 Billion A Year In Wind Energy Subsidies, Without ...
Back in December 2012, while Senate Minority Leader McConnell and Vice President Biden were negotiating a last-minute deal to prevent income taxes from rising across the board, special interests in the wind industry engaged in a flurry of lobbying ...

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Last call at Atlantic City's Revel: a few bettors, $5 bottles, state cops

Yahoo Tax - Tue, 2014-09-02 10:32

By Daniel Kelley ATLANTIC CITY N.J. (Reuters) - Shortly before sunrise on Tuesday, Morgan Capezzera reclined on the roulette table at the Revel Casino in her bikini and snapped a selfie before the Atlantic City gambling hall shut its doors for good. "I love Revel," said Capezzera, 30, of Toms River, New Jersey, who spent most of the day at the casino. "I lost, but I don't care." She was one of few fans who came out for the closing night of a two-year-old casino once heralded by Governor Chris Christie as a new model for the down-on-its-luck New Jersey shore gambling hub. The $2.4 billion project this year went into bankruptcy for the second time in its short history and is one of four Atlantic City casinos to announce that it would shut its doors this year, taking a heavy toll on the budget in a city where the property tax base is expected to fall to $10 billion by 2015, less than half its 2010 level.

Categories: Tax news

IRS Data Contradicts Kleinbard’s Warnings of Earnings Stripping from Inversions

Tax Foundation - Tue, 2014-09-02 04:45

One of the loudest critics of the recent wave of corporate inversions is University of Southern California law professor Ed Kleinbard, who warns that these transactions will erode the U.S. corporate tax base because these newly relocated firms will use “intragroup interest payments” to “strip” income out of their U.S. subsidiary.

While this is thought to be a common practice with multinational corporations, IRS data actually shows that the U.S. subsidiaries of foreign-based companies have smaller interest deductions relative to their total receipts than do American-headquartered firms and, interestingly, they have higher effective tax rates than their domestic counterparts. Thus, Kleinbard’s warnings would seem to be much ado about nothing.

Earnings Stripping

The “earnings stripping” transaction that Kleinbard and others worry about works like a normal bank loan except that the lender is the parent company headquartered in another country. However, since interest payments are a deductible business expense, the interest payments to the parent company (like any bank loan) act to lower the taxable income of the American subsidiary. And, depending on where the parent is located, the interest income from the subsidiary may be taxed at a low rate or not be subject to tax at all by the home country. Thus, the deductible interest payments are said to “strip” income out of the U.S. tax base and transfer it into the lower-taxed coffers of the foreign parent.

If foreign parent companies are indeed stripping income out of their U.S. subsidiaries we would expect to see a relatively large share of their income dedicated to deductible interest payments,  and that these interest payments would be greater than those claimed by domestic corporations. To see if this is true, we used IRS data to compared the deductible interest expenses of foreign-owned companies operating in the U.S. to the interest expenses of U.S. domestic firms.

Chart 1 below shows the interest deducted by foreign-owned and domestic corporations relative to their total receipts between 1994 and 2011. What is immediately noticeable is that the ratio of interest payments to receipts for both firm types seems to track the ups and downs of the business cycle very closely. Indeed, the debt load of all corporations peaked during the boom years of 2000 and 2007 and collapsed during the recessionary periods of 2001 to 2003 and 2008 to 2009.

What is also noticeable is that the interest burdens of both foreign-owned and domestic companies were almost identical during the 1990s, then began to diverge after 2000 when the interest burden of domestic companies began to rise above that for foreign-owned companies. Indeed, since 2000, the interest burden of domestic companies has averaged 6.5 percent of total receipts compared to a burden of 5.5 percent of total receipts for foreign-owned firms. In 2011, domestic firms had an interest burden of 4.1 percent of receipts, compared to foreign-owned firms which had an interest burden of 2.9 percent of receipts.

Why Do Foreign Firms have Lower Interest Burdens?

It is difficult to know exactly what explains why foreign-owned firms have had a lower interest burden than their domestic counterparts over the past decade or so. Perhaps the U.S. “thin capitalization rules” (also known as 163(j) rules after the tax code section) actually work to prevent foreign parent companies from loading up their subsidiaries with too much debt. Or, perhaps foreign parent companies prefer to fund the expansion of their U.S. subsidiaries with equity financing or with domestically-generated profits. Either way, it would take far more granular data than the IRS makes available to understand what is driving these results.

The Effective Tax Rates of Foreign-Owned and Domestic Companies

Another way in which we should see the results of excessive tax planning techniques by foreign parent companies is in the effective tax rates paid by their U.S. subsidiaries. Here again, when we compare the effective tax rates paid by foreign-owned companies to the effective tax rates of domestic companies we don’t see the results of excessive tax planning.

On the contrary, as Chart 2 indicates, IRS data shows that between 1994 and 2011, foreign-owned companies consistently paid a higher effective income tax rate than did domestic companies. Between 1994 and 2011, the effective income tax rate of foreign-owned companies averaged 28.6 percent while the effective income tax rate of domestic companies averaged 24.9 percent.  

Here, the differences can be partially explained by the foreign tax credit that domestic companies can claim for the income taxes they paid to other governments on any offshore earnings they bring home. In 2011, for example, U.S. companies claimed $105 billion in foreign tax credits on their repatriated earnings from abroad. Along with the general business credit, the foreign tax credit helped reduce the income tax liability of U.S. companies from $323.7 billion to $200.8 billion.

It is likely that it in the absence of the foreign tax credit, the effective tax rate of domestic companies would tend to look very similar to the effective tax rates paid by foreign-owned firms.

The Number of Inversions is Small Compared to Inbound M&A Activity

It is also interesting to put inversions within the context of the normal amount of inbound M&A activity in the U.S. each year because it illustrates  how over-the-top are the dire warnings by inversion critics such as Kleinbard, as well as lawmakers such as Senator Carl Levin and Rep. Sander Levin.

According to Congressional Research Service data posted on Rep. Levin’s website, just five U.S. companies completed inversion transaction in 2013 and 55 have completed inversions since 2000. By contrast, in 2013 alone there were 1,278 transactions—worth roughly $60 billion—involving U.S. assets purchased by foreign companies. It is worth noting that both of these figures were at a ten-year low. Since 2004, however, the number of transactions involving the purchase of U.S. assets by foreign buyers has averaged about 1,500 annually, while the value of these transactions has averaged $105 billion each year.

If these critics were consistent in their logic, they should oppose all foreign acquisitions of U.S. companies. Because, in their view, if inversions are a major threat to the U.S. tax base, then these M&A figures would suggest that the foreign purchases of American firms also ought to be a bigger threat to the corporate tax base.

But as the IRS data indicates, the fears may be greater than the actual threat. Moreover, history has shown that foreign direct investment is very beneficial to the U.S. economy and should be encouraged, not chased away.

The Solution

Of course, the real threat to the U.S. corporate tax base is our corporate tax code itself, with the third-highest overall rate in the world and a worldwide system that requires American companies to pay a toll charge to bring their profits back home. Thus, the solution to the inversion “problem” is to dramatically cut the corporate rate and to move to a territorial tax system, not add even more unnecessary rules to an already complicated tax code.


Data sources:

The corporate tax and interest data for foreign and domestic companies is derived from the IRS Corporation Complete Report, Tables 16 and 24, for years 1994 through 2011. Since Table 16 (Returns of All Active Corporations, Form 1120) includes the returns of foreign-owned companies, it was necessary to subtract the data for receipts, interest, and taxes found on Table 24 from the aggregate data in Table 16 for each year. The residual data is considered from “domestic” corporations.,-Form-1120

The Mergers and Acquisition data is found at the UNCTAD website:



Categories: Tax news

IRS Denies Exempt Status Under Section 501(c)(4) For Too Much Political Activity - Mondaq News Alerts (registration)

Google IRS Federal Income Tax - Mon, 2014-09-01 09:19

IRS Denies Exempt Status Under Section 501(c)(4) For Too Much Political Activity
Mondaq News Alerts (registration)
Section 501 (c)(4) of the Internal Revenue Code provides for the exemption from federal income tax of organizations not organized for profit but operated exclusively for the promotion of social welfare. Section 1.501(c)(4)-1(a)(2) of the Income Tax ...

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Categories: Tax news

The Color of Money | Tax alert on health premiums - Columbus Dispatch

Google IRS Federal Income Tax - Sun, 2014-08-31 08:14

The Color of Money | Tax alert on health premiums
Columbus Dispatch
However, if your income for the year was too high (relative to the federal poverty line) to qualify for the credit, you'll have to repay all of the payments that were made on your behalf as an additional income-tax liability, according to the IRS. If ...

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Categories: Tax news

Driving Ferrari But Reporting Low Income To IRS Gets Ticket To Jail - Forbes

Google IRS Federal Income Tax - Sat, 2014-08-30 12:47


Driving Ferrari But Reporting Low Income To IRS Gets Ticket To Jail
Don't argue our tax system is voluntary either. The IRS hates this. Don't argue that wages, tips, and other compensation are not income. Avoid saying Federal Reserve Notes are not income or that only foreign-source income is taxable. This has ...
Blue Jays give Derek Jeter a trip to Canadian

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Categories: Tax news

Eater Tastings: Tavernita Shutters Amidst Tax Debt; RPM Steak Debuts; More

Yahoo Tax - Fri, 2014-08-29 10:27

This week's top dish from Eater Chicago, Curbed's restaurant, bar, and nightlife blog... RIVER NORTH—Mercadito's Spanish drinking and eating hotspot Tavernita shuttered yesterday amidst a revoked liquor license and $75,000 in state tax debt. Their casual Mercadito Counter opened this...

Categories: Tax news

Brunswick pair charged with federal tax-evasion scheme - The Forecaster

Google IRS Federal Income Tax - Fri, 2014-08-29 09:41

Brunswick pair charged with federal tax-evasion scheme
The Forecaster
David E. Robinson, 75, and F. William Messier, 70, are charged with multiple counts of conspiracy to defraud the U.S. government by impeding or impairing an IRS investigation, according to court documents. Messier has not filed a federal income tax ...

Categories: Tax news

The Simple Solution to Corporate Inversions

Tax Foundation - Fri, 2014-08-29 06:45

Inversions have been in the news consistently this summer as multiple companies have looked for legal paths away from the U.S. corporate tax system. Burger King became the latest corporation to add to the list after they announced their planned moved to Canada. The reason: Our corporate tax system is out of date.

The average corporate tax rate across the 34 member Organization for Economic Cooperation and Development has dropped from 47.5 percent in 1981 to 25.3 percent in 2014. Since the late 1980s the U.S. rate has remained stagnant at around 40 percent. Additionally, the U.S. is one of only six OECD countries that still tax income on a worldwide basis (the lack of a territorial system is likely the main driver of inversions).

So what’s the solution? Greg Mankiw has an idea. From the New York Times:

“Perhaps the boldest and best response to corporate inversions is to completely rethink the basis of corporate taxation. The first step is to acknowledge that corporations are more like tax collectors than taxpayers. The burden of the corporate tax is ultimately borne by people — some combination of the companies’ employees, customers and shareholders. After recognizing that corporations are mere conduits, we can focus more directly on the people.

“So here’s a proposal: Let’s repeal the corporate income tax entirely, and scale back the personal income tax as well. We can replace them with a broad-based tax on consumption. The consumption tax could take the form of a value-added tax, which in other countries has proved to be a remarkably efficient way to raise government revenue.”

Many OECD countries have been going this way as they have moved to replace taxes on corporations with taxes on consumption.

This method isn’t without its critics though:

“Some may worry that a flat consumption tax is too easy on the rich or too hard on the poor. But there are ways to address these concerns. One possibility is to maintain a personal income tax for those with especially high incomes. Another is to use some revenue from the consumption tax to fund universal fixed rebates — sometimes called demogrants. Of course, the larger the rebate, the higher the tax rate would need to be.”

The point is: we need to reform the U.S. tax code (both corporate and individual). Not just to stop inversions, but to improve U.S. competitiveness and grow the U.S. economy (and I’m not talking about -2.1 percent growth followed by 4.2 percent, but real, long-term growth). If all sides are willing to come to the table with those goals in mind, then, as Mankiw suggests, there are solutions to be found. Trading the corporate tax for a VAT with a rebate might be one option.

Categories: Tax news

Detroit says Barclays agrees to $275 million financing

Yahoo Tax - Thu, 2014-08-28 13:32
(Reuters) - Barclays Capital Inc has agreed to raise up to $275 million to fund Detroit's exit from municipal bankruptcy, the city announced on Thursday. The funding will involve financial recovery bonds issued through the Michigan Finance Authority then purchased by Barclays at a price equal to par, according to deal's term sheet. Barclays will be the exclusive underwriter and syndication agent for the so-called exit facility. The bonds, which include up to $200 million of tax-exempt debt, will be secured by a lien on Detroit's income tax revenue.
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